10) The first step in activity-based costing is to

	A. identify the cost driver that has a strong correlation to the activity cost pool
	B. assign manufacturing overhead costs for each activity cost pool to product
	C. identify and classify the major activities involved in the manufacture of specific products
	D. compute the activity-based overhead rate per cost driver

11) Which would be an appropriate cost driver for the ordering and receiving activity cost pool?

	A. Inspections
	B. Machine setups
	C. Machine hours
	D. Purchase orders

12) Which of the following is NOT typical of traditional costing systems?

	A. Use of multiple cost drivers to allocate overhead
	B. Use of a single predetermined overhead rate
	C. Assumption of correlation between direct labor and incurrence of overhead cost
	D. Use of direct labor hours or direct labor cost to assign overhead

13) What sometimes makes implementation of activity-based costing difficult in service industries is

	A. attempting to reduce or eliminate nonvalue-added activities
	B. the labeling of activities as value-added
	C. that a larger proportion of overhead costs are company-wide costs
	D. identifying activities, activity cost plus, and cost drivers

14) Which of the following is a value-added activity?

	A. Inspections
	B. Engineering design
	C. Inventory storage
	D. Machinery repair

15) Each of the following is a limitation of activity-based costing EXCEPT

	A. Some arbitrary allocations continue.
	B. It can be expensive to use.
	C. More cost pools are used.
	D. It is more complex than traditional costing.

16) Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines, $800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:

	Mini A	Maxi B
Direct labor hours	15,000	25,000
Machine setups	600	400
Machine hours	24,000	26,000
Inspections	800	700

Overhead applied to Mini A using traditional costing using direct labor hours is

	A. $1,920,000
	B. $1,200,000
	C. $1,670,000
	D. $1,536,000

17) One of Astro Company's activity cost pools is machine setups, with estimated overhead of $150,000. Astro produces sparklers (400 setups) and lighters (600 setups). How much of the machine setup cost pool should be assigned to sparklers?

	A. $60,000
	B. $90,000
	C. $150,000
	D. $75,000

18) Poodle Company manufactures two products, Mini A and Maxi B. Poodle's overhead costs consist of setting up machines, $800,000; machining, $1,800,000; and inspecting, $600,000. Information on the two products is:

	Mini A	Maxi B
Direct labor hours	15,000	25,000
Machine setups	600	400
Machine hours	24,000	26,000
Inspections	800	700

Overhead applied to Mini A using activity-based costing is

A. $1,536,000

B. $1,920,000

C. $1,200,000

D. $1,664,000

19) Seran Company has contacted Truckel Inc. with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $11 per unit. Fixed costs are $12 per unit; however, $5 per unit is avoidable. Should Truckel make or buy the wickets?

	A. Buy; savings = $10,000
	B. Make; savings = $10,000
	C. Buy; savings = $25,000
	D. Make; savings = $20,000

20) Rosen, Inc. has 10,000 obsolete calculators, which are carried in inventory at a cost of $20,000. If the calculators are scrapped, they can be sold for $1.10 each (for parts). If they are repackaged, at a cost of $15,000, they could be sold to toy stores for $2.50 per unit. What alternative should be chosen, and why?

	A. Repackage; revenue is $5,000 greater than cost.
	B. Repackage; receive profit of $10,000.
	C. Scrap; profit is $1,000 greater.
	D. Scrap; incremental loss is $9,000.

21) Walton, Inc. is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $16, while the cost of assembling each unit is estimated at $17. Unassembled units can be sold for $55, while assembled units could be sold for $71 per unit. What decision should Walton make?

	A. Sell before assembly; the company will save $15 per unit.
	B. Process further; the company will save $16 per unit.
	C. Sell before assembly; the company will save $1 per unit.
	D. Process further; the company will save $1 per unit.

22) Hartley, Inc. has one product with a selling price per unit of $200, the unit variable cost is $75, and the total monthly fixed costs are $300,000. How much is Hartley